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HOME INSURANCE

03/01/2011

When clients purchase a property, be it a condo or a single-family dwelling or a float home, they invariably ask about insurance. What do I need? Where should I go? Many of the common questions I am asked every month are responded to below.

Bill: Victoria, being on the West Coast, is in an earthquake zone as most are aware. Clients often ask about earthquake insurance and the implications of having or not having such coverage. To begin with, what percentage of households you cover employ earthquake insurance?

Marleen: By far the majority elect to purchase earthquake insurance. Eighty percent if not more.

Bill: What would the cost of such coverage look like on an average single family dwelling in Victoria: three bedrooms, two bathrooms, 2000 square feet? What are the common deductibles and how do these deductibles impact he extra price for such coverage?

Marleen: It is hard to state an average cost because it does depend on so many factors. Insurance, even house insurance, is personal that way. A 5% Earthquake Deductible (applicable to the limit of insurance) is standard. However, higher deductibles are available thereby reducing the cost of this coverage. Earthquake wordings vary with respect to the application of the deductible and with respect to the definition of the earthquake shock itself and what constitutes one occurrence and should be discussed with your broker.

Bill: I was once in a woman’s house which, she claimed, was built to resist an earthquake. Would such a factor affect the policy?

Marleen: This would be somewhat unusual, and would be handled on a case by case basis. Concessions may be possible depending on the particulars of the situation which should be brought to the attention of the agent for further discussion with underwriters

Bill: Because most houses in the Greater Victoria are wood-framed, I have heard it said that the likely damage would be a shifting of the structure on the foundation, cracking of windows etc. Not the crumbling we see on film from other countries. Would such damage be covered in any way if one did not have earthquake coverage?

Marleen: The answer is no. If damage is caused by an earthquake, only those with earthquake coverage will benefit.

Bill: I have also heard some say there is no point to earthquake insurance because if, for example, southern Vancouver Island was to some extent wiped out in an earthquake, the government would step in a declare a state of emergency and everyone would be salvaged as a result. Do you have a comment on this perspective?

Marleen: In my opinion I don’t think this would apply. Emergency coverage usually comes in to play only for those who were not eligible for a given type of insurance coverage. This would be a huge gamble also given that earthquakes can be of various sizes and frequency and may destroy a home but not be large enough to create the type of damage that would justify a “State of Emergency”

Bill: When you have clients new to the area, what kinds of recommendations do you make to them regarding the chance of an earthquake?

Marleen: Earthquake insurance is always recommended to clients new to the area. Earthquake insurance is important in B.C., especially in our local area. A model developed recently by the Geological Survey of Canada (GSC) shows that the probability of a structurally damaging event due to crustal or sub crustal earthquake in Vancouver or Victoria within the next 50 years is at 12% and 21% respectively. The Association of Professional Engineers of BC has stated that the risk of earthquake in the Lower Mainland and on Vancouver Island is substantial. Many are unaware that parts of Ontario are exposed to the threat of earthquakes as well. We are not alone. This information was recently cited in the BC Broker Magazine (Dec 16, 2010)

Bill: Are there any other house insurance issues you feel might be of interest to consumers?

Marleen: A few things come to mind. Homeowners should consider a high limit of liability on their insurance policies. Most policies include $1,000,000 as a minimum limit however higher limits are available for minimum cost and it is highly recommended that this option be considered given today’s legal climate.

Water damage claims are for most Canadian Insurers their primary loss issue. While water damage is not entirely avoidable, taking preventative measures can substantially lower the risk to your home. Many of these measures are relatively inexpensive and can be done as part of the routine maintenance of your home.

Some things to consider:

Water Heaters- consider replacing proactively after 7 years as they tend to leak as they age.

Roofs – eaves troughs and downspouts should be cleared of leaves and other debris regularly.

Basements & Sewer Back-up – Keep basement drains clear of obstructions; store items away from walls and off the floors, sealed plastic containers are best. Valuables or irreplaceable sentimental items should not be stored in the basement.

Taps, Hoses and Pipes - Regularly inspect all seals and hoses around appliance and bathroom and kitchen fixtures for wear; Steel braded/reinforced hoses have a much longer lifespan (15 years) than rubber hoses (5 years) and are strongly recommended; check for rust and corrosion on all pipes. Leave heat on in the winter to prevent freezing and shut off the water and allow pipes to drain if they are located in unheated areas of the home.

While you are away – Shut of the water to all appliances while on vacation or while leaving your home for an extended period and make sure your entire family knows where the water shut off valve is and how to use it in case of emergency.

Also, specialized collections should seek specialized coverage. Things like extensive silver collections or coin collections. It’s useful to be aware that such tweaking of your policy is possible and recommended. Lastly, when conferring with an agent, mention things like Block Watch membership and alarm systems, as these types of things can save you money on your insurance policy.

Thank you to Marleen Richardson for her kind and informative assistance with these questions so common to my clients. Marleen works with Megson FitzPatrick Insurance. She can be reached at 250-727-7961 or www.megsonfitzpatrick.com

Note: comments provided are a reflection of an experienced insurance broker, but are not intended to apply to everyone. All insurance needs must be dealt with on a case by case basis.

12/14/2010

One type of insurance many homeowners may be unaware of is called Title Insurance. Some banks insist on it being in place and many lawyers believe consumers should be aware of Title Insurance based on the protection it affords. The cost, usually arranged during a home purchase, is around $250. The following article by Jennifer Clee explains the concept.

Title Insurance

Title insurance is an insurance policy provided by title insurance companies that protects residential or commercial property owners and/or their lenders against losses related to a property's title or ownership.

While each title insurer may offer slightly different coverage, some of the coverage provided by title insurance companies includes: coverage for unknown title defects; survey errors and errors in public records; losses related to improvements made without the requisite building permits (unless made by you); existing liens against the property's title for unpaid debts by the previous owner (utilities, taxes, mortgages or condominium charges registered against the property); real estate fraud and forgery; invalidity of mortgages; and encroachment and unregistered easement issues.

Title insurance will generally not cover known title defects1, environmental hazards, native land claims, matters created, allowed or agreed to by the insured, or matters known to the insured but not disclosed to the title insurer prior to closing (e.g. matters identified in a building inspection).

Title insurance is usually purchased by a buyer at the time of purchase, although it may be purchased anytime after. The insurance cost, generally a one-time fee or premium, is usually determined by the property's value and depends upon the chosen provider.

Consider this scenario: an elderly seller owns a piece of property in a rural area for many years. After obtaining a variance from the governing authority, the seller constructs outbuildings which encroach upon the adjacent property. No record is kept of the variance by the approving authority.

Years later, when selling the property, the seller completes the Property Disclosure Statement indicating that he is unaware of any unregistered encroachments.2 The buyer discovers the encroachment after purchasing the property and incurs a loss in rectifying the issue. A buyer with title insurance would likely be indemnified by the title insurer for any proven loss associated with the violation. A buyer without title insurance would likely sue the seller and licensees involved in the sale to recover losses associated with the undisclosed encroachment.

Here are examples of recent claims paid out to BC homeowners by a major title insurer3:

Buyer received notice from the City that the basement apartment was built without obtaining required development or building permits. A permit was required to remove or to legalize the apartment. Cost of claim: $239,958.

Buyer had municipality conduct a site inspection of the property after experiencing plumbing problems. The inspector found numerous problems with the dwelling, as well as illegal gas and plumbing lines, and an unpermitted addition to the garage. The municipality issued an Order to Comply. Cost of claim: $270,797.4

To date, there is no standard industry practice to alert buyers to title insurance availability.

Given the protection that may be afforded to buyers who purchase title insurance, licensees may well wish to advise buyers of its availability. This suggestion has already been made to real estate practitioners.

12/13/2010

The importance of building permits to those renovating and to those buying renovated homes

Home renovations are taking place in Canadian homes on a daily basis and at a remarkable speed. Reality television may leave homeowners with the impression that a kitchen can be gutted between commercial breaks, a wall insulated in moments and an exterior addition completed within the hour. Adding value to the sale of your home or simply adding to the enjoyment of your own home is not a new phenomenon for Canadians. However, the lightning speed of these "reality" renovations can mislead the average homeowner in their own renovation plans and leave behind costs that exceed the home's renovated value.

"Many Canadians consider renovations to increase the value of their property for a sale or immediately after a new home purchase," says Ray Leclair, an experienced real estate lawyer and vice-president of the TitlePLUS program at Lawyers' Professional Indemnity Company (LawPRO). "It may be tempting to immediately start tearing down or building up, however, homeowners need to tread carefully, and be sure that they are legally protected with building permits or their reality could be costly."

While it likely comes as no shock to homeowners that the big jobs (for example, structural changes to a home) need building permits, it may be surprising for some to learn that many of the smaller jobs (such as finishing basements, updating plumbing or electrical equipment, or even adding a wood burning stove) may require permits as well.

Recent statistics released by the Canadian Mortgage and Housing Corporation revealed that 45 per cent of households intend to do some form of maintenance and repairs, while 78 per cent will undertake alterations and improvements. Sixty-eight per cent of households who intend to renovate this year, will do so to update, add value, or prepare to sell their home.

"A dream home purchase can turn into a nightmare if you do not acquire the proper permits or if renovations were done by a previous owner without a permit," adds Leclair. "The municipality may force you to remove walls, ceilings, cabinets and other finishes so that an inspector can determine if the work complies with the building requirements or in the worst case, remove the improvement entirely - the first step any would-be renovator should take is to speak to their real estate lawyer to ensure that the work they have planned is compliant with municipal codes."

To help homeowners avoid disappointments, delays or unpleasant surprises, Leclair suggests consulting an experienced real estate lawyer. Another useful resource is the TitlePLUS Real Simple Real Estate Guide, a website with information on what real estate lawyers do, as well as a mortgage calculator, a locate-a-lawyer feature and other tools. It is available free at titleplus.ca.

TitlePLUS title insurance is provided across Canada by Lawyers' Professional Indemnity Company (LawPRO), a licensed insurer.